Considering the high returns of 2020 and 2021, there was an anticipation of impossibly high returns from the markets.
Irrespective of the performance of the company’s fundamentals, the stock price during the past two years reflected no sign of caution, but now this is not the case.
Many textbook investor biases are now coming to fruition. Concepts like loss aversion bias and herd mentality have done a tremendous job in inflating panic.
Throughout the last 400 days, markets have ensured that weak hands get eliminated, and only long-term investors remain in the markets for the long haul.
However, we are seeing most of our investor community staying put, strengthening their portfolios with frequent capital injections, and gladly interacting with us with an optimistic outlook.
We believe that touching base with investors through our wealth managers has been a comforting factor for the investors.
Personally, addressing their apprehensions about market volatility, fundamentals and macros have ensured investors commit a long time to their investments.
Compared to just 5 years ago, the fin-fluencer community on social media has grown exponentially which has created more awareness among the investor community.
Even though there is panic in the markets, this is normal. The panic is being quelled to an extent thanks to fin-fluencers, who can apply economic logic to today’s market scenario and present it in a captivating manner to their audience.
We are seeing many large family offices approaching us and increasing their allocation in this opportunity.
This is the smartest capital and is well versed with the Indian economy and business environment coming from their experience of managing large businesses.
The only irony of every fall is that it dissuades investors from aggressively allocating capital to markets. They invest aggressively at the peak while they are less aggressive at the bottom.
The new investors are currently dissuaded from investing as they have seen the downfall over the last 6 months. Most of them will get aggressive in allocation when we see positivity around news and events and when markets reverse.
Investors should understand that the markets run 3-6 months ahead of fundamentals and just by advancing their investment decision, investors can create a huge additional return on their equity investments. For instance, on average, market prices are in a recession 116 days before the actual recession has taken place.
Along the same lines, after COVID 19 market correction, it only took the Indian markets 25 days to reverse course.
When everyone on the street is talking about war, crude, inflation, and commodities, you can assume that the peak of this bad news is getting formed as the markets begin bottoming. We see most of this bad news priced in the markets.
Euphoria or chaos, the bond markets price it in first, followed by the equity markets. From our analysis, most of this chaos has been baked into the equity indexes.
Surely, consumer sentiments are nearly at an all-time low owing to the higher cost of living, and this is perfectly normal.
Economies are cyclical, and a recession in western countries happens frequently and this is part of that cycle. Inflation remains the keyword of this year.
We are seeing central banks all around the world hiking interest rates and hoping for a soft landing.
Most if not all commodities have corrected significantly and US Crude stockpiles are showing encouraging data which would slow down inflation.
Inflation numbers should peak in the next 3 months as a matter of fact, and consumer demand will have a ride back.
Moreover, we also foresee the supply chain issues getting resolved sooner after China reopens. The latest PMI data is reflective of the same.
Once the dust settles, the market is bound to reflect India’s reality. With the fastest-growing middle class in the world and being the fastest-growing large economy in the world, Indian markets will witness the sharpest recovery.
China plus one and Atmanirbhar further strengthen our conviction. Speaking to the management of large portfolio companies, there is resounding optimism in their tremble and no signs of any stress in on-ground performance.
Most of the currency depreciation has been done and we should see the FPI coming back as they see the inflation being handled efficiently by the economy.
The leverage on the balance sheets is low and we are seeing the cushion to do capex and grow along with the China plus one and Aatmanirbhar Bharat.
All in all, in the medium-term, US Midterms should be the next defining point for the markets.
(The author is Founder of Green Portfolio)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)